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FM REO KIRKUK
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INFO RUCNRAQ/IRAQ COLLECTIVE
RUEHKUK/REO KIRKUK 0548

C O N F I D E N T I A L SECTION 01 OF 03 KIRKUK 000037 
 
SIPDIS 
 
SIPDIS 
 
BAGHDAD FOR POL, ECON, USAID, IRMO, NCT 
 
E.O. 12958: DECL:  2/16/2016 
TAGS: KCOR ECON PGOV PREL IZ
SUBJECT: (U) CORRUPTION IN THE KURDISH NORTH 
 
KIRKUK 00000037  001.2 OF 003 
 
 
CLASSIFIED BY: Scott Dean, Regional Coordinator (Acting), Reo 
Kirkuk, Department of State . 
REASON: 1.4 (b), (d) 
 
 
 
¶1.  (C) INTRODUCTION AND SUMMARY:  Corruption is Kurdistan's 
biggest economic problem.  The two ruling parties' dominant 
control lets corruption flourish.  Corruption relies on 
family-clan and/or peshmerga ties.  Kurdish corruption starts at 
the top with a few political "godfathers" who quietly distribute 
contracts among themselves.  Some members of a younger, third 
generation of party leaders in alliance with reform-minded 
politburo members in both parties are pushing for reform. 
However, their efforts are unlikely to bear fruit until after 
the Kirkuk issue is resolved and Kurdistan's borders are 
decided.  (NOTE:  The information in this cable was obtained 
from a variety of sources -- Arab, Christian, Kurdish, Turcoman 
and expatriate businessmen and NGO workers -- over the last six 
months.  END NOTE.)  END INTRODUCTION AND SUMMARY. 
 
 
(SBU) KURDISTAN'S CORRUPTION AND DEMOCRACY DEFICIT LINKED 
--------------------------------------------- ------------ 
 
¶2.  (SBU) The biggest complaint most ordinary Kurds have about 
both the Kurdistan Democratic Party (KDP) and the Patriotic 
Union of Kurdistan (PUK) is their extreme corruption.  Most 
Kurds believe corruption permeates every level of the parties 
and the two Kurdistan Regional Governments (KRGs) they control: 
KRG-Erbil (KRG-E) and KRG-Sulaymaniyah (KRG-S).  Most believe 
the two parties see the ubiquitous political controls they put 
on public life as necessary to protect their respective sources 
of illicit funds.  Thus, common wisdom in Kurdistan links 
corruption and the democracy deficit. 
 
 
(C) ORIGINS:  A FISH ROTS FROM THE HEAD 
--------------------------------------- 
 
¶3.  (C)  The ruthless competition between the two parties has 
made them desperate to hold on to their supporters and win new 
ones.  Neither party can afford to be pickier than the other in 
how it does this or who its allies are.  Neither party thinks it 
can afford to hold its members accountable.  The parties' 
Soviet-style political system in which the formal government, 
including the judicial and legislative branches, is subordinate 
to the party robbed both KRGs of independent oversight.  Loyalty 
became the paramount value; competence and honesty were 
dismissed.  Once in power, party leaders took their rewards; 
their followers emulate them.  Ignorance and ever-present 
worries about Baghdad also help to keep people's eyes shut to 
the problem.  Thus, in Kurdistan corruption spread from the top 
down. 
 
 
(SBU) CORRUPTION BASED ON CLAN AND PESHMERGA TIES 
--------------------------------------------- ---- 
 
¶4.   (C) Corruption in Kurdistan follows a patron-client model. 
The difference between the two regions is more one of degree. 
KRG-E corruption centers more on the Barzani clan; KRG-S 
corruption runs on old Peshmerga ties.  The core of the 
corruption in both, i.e., "the godfathers" as one interlocutor 
termed them, lies with those who control the security forces. 
They keep the game running because controlling the guns means 
they can enforce their illegal contracts.  Security forces, and 
thus corruption networks, depend on their patrons and thus 
seldom cross party lines, i.e., companies that do business in 
Erbil do not do business in Sulaymaniyah and vice versa.  This 
extends even to the cell phone industry, e.g., Asiacell in 
Sulaymaniyah and Korek in Erbil.  According to one Kurd in 
Kirkuk, Asiacell's profits are divided 50:50 between three PUK 
politburo members and the company. 
 
 
(C) MUNICIPALITY MINISTRIES AS CORRUPTION CENTERS 
--------------------------------------------- ---- 
 
¶5.  (C) Some ministers and ministries are worse than others.  In 
both KRGs, the Minister and Ministry of Municipalities are 
perhaps the most corrupt.  One of many scams these ministers run 
is extorting kickbacks from recipients of land awarded to them 
in recognition for their service to the parties.  The minister 
and all of the officials who sign off on these land grants take 
a fee from the recipients.  In addition, the minister will award 
some of the land to himself and some to his friends for a fee. 
 
 
(C) 10%-30% IS THE TYPICAL SHARE 
 
KIRKUK 00000037  002.2 OF 003 
 
 
-------------------------------- 
 
¶6.  (C) Government contracting is predictably rife with 
corruption.  For example, in Sulaymaniyah, without a godfather 
one will not even receive the tender advertising the project. 
Fights between connected companies are not necessary because 
there is so much money floating around that everyone can get a 
piece.  (Comment:  This may not last.  As the circle of 
corruption widens and deepens, eventually demand will outrun 
supply.  End Comment.)  The entrepreneur pays 10%-30% of the 
contract's value to his "partner" and another 10% to the 
director of the government office issuing the contract.  If it 
is a construction contract, one can use substandard materials 
and shoddy work to preserve the profit margin.  The building 
inspector will pass it because he will have been told to do so 
even before he shows and he will get a payoff too.  The office 
director will cut a similar deal to ensure any samples pass 
government lab tests. 
 
 
(C) FUELING CORRUPTION 
---------------------- 
 
¶7.  (C) Corruption is rife in the fuel business, as the 
existence of hordes of street fuel sellers attests.  Fuel 
shortages are manipulated and perhaps created by the parties so 
as to drive up black market fuel prices.  Also, fuel for Iraq is 
sold into Turkey and Syria.  For example, in January 2006, a 
Kurdish resident of Kirkuk told IPAO the story of a newly-hired 
customs inspector who (in January 2006) noticed four fuel trucks 
coming from Turkey that were suspiciously heavy.  He checked 
inside and found the tanks full of water, whereupon he arrested 
the drivers and impounded the trucks.  That night, a high KRG 
official called the office and said those were his tanker 
trucks.  The trucks and drivers were released with an apology 
from the officer. 
 
 
(U) "I am your friend," AND "This is best for you." 
--------------------------------------------- ------- 
 
¶8.  (C) Every large company is affiliated with one of the 
"godfathers."  If it were not, it would soon shrink for lack of 
business.  Anyone investing in the north will be approached by 
someone not directly affiliated with the KRG leadership of that 
area who will take a 10%-30% stake in the company or project. 
The real godfathers never reveal themselves.  In Sulaymaniyah, 
we hear there are three or four of them and they are all PUK 
politburo members.  If anyone tries to cause one of their 
companies a problem or take away a contract, the godfathers just 
say, "That belongs to a cousin of mine" and the matter is 
dropped. 
 
 
(C) CORRUPTION WARPING THE ECONOMY 
---------------------------------- 
 
¶9.  (C) Corruption has warped the growth of the entire Kurdistan 
economy.  For example, the leading private companies in 
Kurdistan are all vertically integrated cross-sectoral 
conglomerates, e.g., Diyar Group, Eagle Group, Falcon Group, KAR 
Group, Nasri Group, Sandi Group, Silver Star Group and Ster 
Group.  These conglomerates tend to have construction, 
import-export, logistics, real estate and security subsidiaries. 
 All of these companies are alleged to be allied to one or more 
non-competing "godfathers" in the local ruling party.  The 
vertical integration is necessary because corruption means that 
one cannot allow well-connected rivals to control the goods and 
services one needs to operate.  So, these politically connected 
entrepreneurs import inputs, organize the shipments, protect the 
shipments and work sites, buy the real estate and build the 
projects themselves.  Capabilities across sectors allow a 
conglomerate to compete against other client firms of its patron 
for any contract its patron may land. 
 
¶10.  (C) The economies and governments of the Kurdish north are 
tightly wrapped in the tentacles of the KDP and PUK.  Those 
tentacles are extending into the Kurdish-inhabited border zones 
of Ninawa, Salah ad Din and Diyala provinces and Kirkuk as the 
biggest prize of all.  In Kirkuk, we are told the KDP focuses on 
land speculation and the PUK on contract fraud.  With Kirkuk 
still up for grabs, albeit more tightly bound to the PUK than 
KDP at this point, business remains depressed.  Companies await 
a victor in the turf war so they can shop with confidence for a 
lasting patron. 
 
 
(C) KDP/PUK GENERATIONAL CHANGE COULD OVERTURN THE SYSTEM 
--------------------------------------------- ------------ 
 
 
KIRKUK 00000037  003.2 OF 003 
 
 
¶11.  (C) A western expatriate businessman in northern Kurdistan 
acknowledged the widespread corruption, but notes that many 
party leaders do not see what they do as wrong.  They think of 
it as just compensation for all their sacrifices in the 
struggle.  The second tier of leaders in the KDP and PUK 
politburos below Barzani and Talabani also participate in the 
corruption.  However, the third generation of leaders divides 
between those who want their turn at the trough and those who 
want to end corruption.  The last group is allying itself with 
second-generation leaders, such as the KDP's Nechirvan Barzani 
or the PUK's Nechirwan Mustafa, who also support change.  Our 
source notes that Barzani, Talabani and second-tier leaders 
already have their bank accounts, homes and family members 
abroad, as well as substantial assets inside the country.  He 
believes that, so long as they can enjoy the fruits of their 
labors, they will not stop the change.  Also, they know that 
everything they have built for Kurdistan will be lost if reform 
does not come. 
 
 
(U) COMMENT 
----------- 
 
¶12.  (C) Corruption is the main economic problem in the north. 
Corruption chases away much legitimate investment (although the 
Kurds have been wise enough to wield corruption as a tax and not 
a confiscatory device), delegitimizes the whole idea of free 
markets and democracy, increases the (still small but growing) 
support for Islamic parties and increases the power of the 
corrupt, making it less likely they can be pried out of their 
positions.  Furthermore, intra-Kurd corruption feeds the fears 
of Arab, Christian and Turcoman minorities in Kirkuk that they 
will be completely shut out of government jobs (still the vast 
majority of all jobs here), contracts and markets by KDP and PUK 
loyalists.  This is a legitimate concern and it makes a violent 
explosion over the future final status of Kirkuk more rather 
than less likely.  However, real internal reform is unlikely 
until after the Kirkuk issue is settled and the other borders of 
Kurdistan finalized.  Only then will the reformers and their 
supporters have the space to undertake internal reforms. 
DEAN